Student Loan Debt Impacts Millennial Buyers

Student loan debt is impacting some first-time Millennial homebuyers. MagnifyMoney, a LendingTree-affiliated online site that helps consumers compare financial products, recently looked at student loan debt and Millennial average net worth. There were some interesting findings.

According to the MagnifyMoney team, “Millennials with student loan debt tend to have larger mortgages on lower-value homes. The home values of millennials younger than 35 with student loan debt are 5% lower than those without student loan debt. The median value of homes for those with unpaid student loans was $157,000 in 2016, while millennial homeowners without student debt had homes with a median value of $165,000.”

Brian Karimzad, co-founder of MagnifyMoney and senior vice president of research at LendingTree, goes behind the numbers with a few surprises. “Homeownership rates are nearly identical to those without student loan debt. About 34% of millennial graduates with student loans are homeowners, while 36% of those without student loans are homeowners.”

Where the equation changes are the price of homes bought by Millennials with student loan debt. “The difference is those with student loan debt are buying homes priced about 5% less than those without. That works out to about $8,000 on a typical home and could reflect a harder time saving for a down payment or being able to qualify for a larger mortgage because of the burden of student loan debt,” Karimzad explains.

According to information from the Federal Reserve,“ between 2001 and 2016, the real amount of student debt owed by American households more than tripled, from about $340 billion to more than $1.3 trillion.”

As housing prices have risen dramatically around the country, Millennials making that first home purchase are seeing the long-reaching impact of student debt. “The important thing for students is to truly understand all the repayment options once they graduate. There are first-time buyers with significant student loan debt applying for mortgages who are not qualifying because of that,” notes Michael Pulver, senior residential mortgage manager at Genesee Regional Bank in Rochester, New York.

San Diego is a top city for Millenials

Beau Hodson founder and senior mortgage loan originator of San Diego-based Transparent Mortgage works with first-time Millennial buyers. “I see student loan debt impacting sales because the rules for qualifying are pretty black and white. Only the VA loan program allows student loans in deferment status (not required to be paid back yet) to be counted as such, all the other loan programs will make us calculate a monthly payment estimate and factor that in.” Hodson advises clients to "work towards paying down student loans rather than putting those additional funds towards a mortgage.”

Megan Coval, vice president for policy and federal relations at the National Association of Student Financial Aid Administrators has advice for borrowers. “As we think about student loans on the back end, we focus on students responsibly borrowing on the front end.” Coval's national association represents college and university financial aid administrators. “Every year a student takes out a new loan, they have to know what the total accumulated debt will be. The Federal government gives students six months after graduation before they have to begin repayment,” she adds.

Arch Mortgage Insurance’s (Arch MI) Summer 2018 Housing & Mortgage Review points to new home units (single and multifamily) and the impact on the growth from student loan debt. “Goldman Sachs is more pessimistic, projecting growth of around 4 percent a year over the next couple of years due to high student loan debt and restrictive underwriting guidelines.”

Nick Bailey, president, and CEO of Century 21 Real Estate sees it this way. “With 42% of home buyers being first-time buyers and 71% of those under 37, student loan debt is a major factor in the housing market.” As interest rates are hovering at 5% and predicted to go higher it’s no doubt qualifying will become tougher. “Lenders are looking at total debt ratio and the rise in student loan debt is throwing that out of whack," Bailey adds.

“An important message on student debt and home ownership is when you go to college and take those loans its essential you finish school,” said Sam Chandan, Ph.D., associate dean at the Schack School of Real Estate at New York University’s School of Professional Studies. “That means you have better income potential to pay those loans off and buy a home.” Good advice for life and home ownership.

I have covered the business of real estate (both residential and commercial) for over twenty-five years. I spent 12 years in the Forbes Los Angeles bureau reporting and writing about as I call it, Adventures in Real Estate. From the first tear-downs turning into mega mansio...